We made up that last one, but we think it's just as useful as the rest. The daily headlines — and the numerous "experts" interviewed in the stories — mislead investors by propagating the illusion that rational explanations exist for everything that happens in the market.

Wall Street strains the old saw that everyone has 20/20 hindsight — academics debate the causes of the 1929 crash and Great Depression to this day. Yet every hour, we get new, confident explanations of the market's behavior, usually side by side with equally confident, contradictory opinions.

Justin Fox's book, "The Myth of the Rational Market" (Harper Business, 2009), examines the history of attempts to codify market behavior in a markedly entertaining fashion. He does a good job pointing out how consistently the market makes fools of experts, regardless of their school of thought.

While the market capitalization of a stalwart company like Johnson & Johnson might change by millions or billions of dollars each day, it is extremely unlikely that the value of the company fluctuates so dramatically.

In the press, as elsewhere, associative data often gets mistaken for a causal relationship, giving inexperienced or inattentive market watchers a false sense of predictability. If a report of high unemployment comes out on a day when the market dips, we hear that it reacted to a likely decrease in consumer spending. If the same report comes out on a day when the market rallies, we hear that high unemployment tends to depress wages and increase profits, thrilling Wall Street. Reporters and experts simply craft explanations to fit the facts of the day.

As we wrote in "The Entrepreneurial Investor" (Wiley: 2007), this illusion of a rational "unified field theory" causes people to believe that if they only studied hard enough and executed the formula precisely, they would always make profitable choices. Yet the people who have most consistently made profitable choices insist that it just isn't so. The most successful investors of the past century, from J.P. Morgan to Bernard Baruch to Warren Buffett, openly shared the real unified field theory of the stock market: it is unpredictable.

One tenet shared by the aforementioned trio of legendary investors is the belief in acquiring deep knowledge of the companies in which one invests.

To behave rationally as investors, we must recognize the extent to which irrational — and inexplicable — behaviors influence the day-to-day value of a stock. Understanding the inevitability of risk is the start of stock market wisdom.

— Kinko's founder Paul Orfalea and Lance Helfert are co-founders of West Coast Asset Management in Montecito. Atticus Lowe and Dean Zatkowsky contributed to this column.